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Real estate brokerage Edina Realty has agreed to pay $3.5 million before the end of the month in order to resolve claims that the company received payments from a home warranty company to promote its products without disclosing the payments to consumers.
Minnesota Attorney General Keith Ellison announced the settlement on Tuesday, Nov. 19. The attorney general alleges Edina did not disclose that it had received payments from Home Security of America (HSA) to advertise HSA’s home warranties to Edina’s clients, depriving them of making an informed decision as to whether to buy such a warranty and misleading them into thinking the warranties were Edina products.
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This, the law enforcement official alleges, violated Edina’s fiduciary duties of loyalty and disclosure to its clients, Minnesota’s Deceptive Trade Practices Act and Minnesota’s Consumer Fraud Act.
“Buying a home is the most expensive and significant financial decision most Minnesotans will ever make,” Ellison said in a statement.
“Real estate brokers like Edina are legally required to act in the best interests of their clients. After a careful investigation, my Office is alleging that Edina Realty violated that duty by secretly accepting substantial payments from Home Security of America to push their home warranty contracts on unsuspecting clients.
“This settlement will put an end to these practices and recover all the secret payments Edina received from HSA. Most importantly, today’s settlement will put this money back in the pockets of Edina’s customers who were misled into purchasing HSA warranties without ever being told that Edina was being paid handsomely to promote these problematic home warranties.”
Inman reached out to Edina Realty for comment and will update this story if and when a response is received. In the settlement agreement itself, Edina said it disputed the attorney general’s allegations and denied violating the law.
“Edina maintains that it provided a written disclosure to its customers that Edina advertised HSA home warranties in exchange for a fixed service fee and that this disclosure was signed by its customers,” the agreement says.
The brokerage “fully cooperated” with the attorney general’s investigation and the payments from HSA went to the brokerage, not the brokerage’s agents, according to the settlement.
Under the deal, Edina is required to pay $3.5 million by Nov. 25. That money will be used to provide first-year premium refunds to thousands of Edina buyer and seller clients who purchased an HSA home warranty on or after July 1, 2018 and in their first year after buying the warranty either filed a claim that was partially or fully denied or did not file a claim.
The current first-year premium for a basic HSA home warranty is $545 for Minnesota residents, the attorney general said, citing HSA’s website.
The deal also requires Edina to end and no longer enter into contractual relationships with any third parties that pay Edina to promote their products to Edina’s clients.
The brokerage also cannot license its name or trademark to any third parties that market their services to Edina’s clients.
Doug Miller
Doug Miller, an attorney, a real estate broker, and executive director of the nonprofit Consumer Advocates in American Real Estate (CAARE) told Inman CAARE had been complaining about home warranties for more than a decade.
“These products were the most complained-about product on all of Angie’s List,” Miller told Inman via email.
“When fiduciaries prey upon their own clients, there need to be consequences.”
HSA Home Warranty’s parent company, Frontdoor, is the leading provider of home warranties in the United States, and operates primarily under the American Home Shield brand.
American Home Shield in 2012 agreed to pay up to $26 million to settle allegations that the company paid illegal kickbacks to real estate brokers and agents to market the company’s home warranties.
American Home Shield acquired HSA Home Warranty in 2014, and Frontdoor also provides home warranties through its OneGuard and Landmark brands.
In addition to selling home warranties, Frontdoor also manages claims, maintaining a network of 16,000 contractors to handle about 4 million service requests a year.
“We provide our customers with a compelling value proposition by offering financial protection against unplanned and expensive home repairs, coupled with the convenience of having repairs guaranteed by us and completed by experienced professionals whose quality levels are continuously monitored,” the company said in its 2023 annual report to investors.
Frontdoor says its technology platform, “makes it easier for Realtors to work with us and, therefore, recommend our product offerings to their clients.”
Editor’s note: This story has been updated with details about HSA’s parent company. Inman mortgage editor Matt Carter contributed to this story.
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